The power makers: the inside story of America's biggest business and its struggle to control tomorrow's electricity.

• Author: Keisling, Philip

The Power Markers

The nation's electric utility companies are the great icebergs of the American economy. Their vast, largely submerged bulk eludes the attention of the public. Last year, electric utilities accounted for one-half of all new common stock issued in America and one-third of all new corporate financing. Annually, the utilities spend four times more on new equipment than all U.S. automakers. The industry has a long-term debt of $100 billion, on which annual interest payments, passed on to ratepayers, exceed $10 billion.

The danger posed by these icebergs is reflected in some different numbers. The nation's utilities are currently awash in excess power, having gone on a construction binge in the last two decades that has left them with 40 percent more capacity than needed to meet current demand. This is dispite the industry's abandonment, since 1973, of more than 150 unfinished nuclear-and coal-powered plants.

One consequence of this colossal economic miscalculation is that monthly utility bills for the typical consumer have tripled since 1973. More rate shocks lie ahead. For example, customers of the Public Service Company of New Hampshire, owners of the troubled Seabrook nuclear power plant, soon will see their bills leap 182 percent when the $4.5 billion plant is finally completed.

If this suggests the wisdom of refraining from further construction, you'd never know it from the multimillion-dollar advertising campaign the utilities are now waging under the auspices of the Edison Electric Institute. The ubiquitous ads warn of devastating power shortages in the near future unless Americans face up to the challenge at hand. According to industry planners, that challenge demands the building of 438 large central generating stations in the next 15 years. That's almost two new plants a month, at a total cost of $1.8 trillion.

Such a lopsided use of the nation's limited pool of investment capital might be palatable if the industry's premise that more electricity use equals more progress were true. Experience and logic, however, suggest just the opposite. What happened to the consumption of another key source of energy--oil--during the 1970s? As its price rose tenfold, consumption plummeted. Consumers found countless ways to conserve, and the government put a healthy dent in oil consumption by mandating fuel-efficient automobiles. While two OPEC price shocks clearly damaged our economy, they did not destroy it; real economic growth during the 1970s still was greater than during the 1950s.

What's happening now with electricity is similar to what happened with oil. It's also something any Economics 101 student could have predicted. As prices have spiraled upwards, consumers have moderated or even reduced their demand. The specialty steel and aluminum industries, for example, have discovered that investing in modern equipment that lowers electricity costs is one of the best strategies for survival in a competitive market. As for the electricity-equals-progress equation, less of the former often means more of the latter. Modern microchip computers are an excellent example. Less expensive, more compact, and far more capable than their transistorized ancestors, these computers also use far less electricity.

There is nothing sacred in a perpetually climbing demand curve for any commodity. Yet for utility executives who have based their multi-billion-dollar construction programs on the...